Perspective on service tax

Perspective on service tax

With an arrangement having aforementioned features a question arises as to whether the builder/ developer, renders any service to the society. There can be a view that the builders/ developers undertake the development of property, which belongs not to them but to the society and in that sense they render services to the society. The view is seriously contentious when viewed in the context of generally prevailing features of a redevelopment agreement mentioned above. The nature of a typical redevelopment arrangement, though not described as such, is of a joint venture arrangement wherein the society contributes the land and redevelopment rights therein and the developer undertakes to incur cost and carry on construction activities. The role of each party is specified and contracted for and the fruits of redevelopment are shared between the society and the developer. In that sense the service performed in pursuance of the redevelopment arrangement by the builder/ promoter is of the nature of self-service, which is admittedly not subjected to service tax.
Much will however, depend upon the terms of the development agreement creating relationship between the owner i.e. the Society and the developer. If the agreement suggests any other relationship for example that of a buyer and seller of FSI or contractor and contractee, the developer will be rendering service to the Society in respect of the portion constructed for it and be liable to service tax.
In case of sale of flats/units by the society of the area coming to its share a view is possible that the sale is not by builder/ developer and hence not liable to tax. Further since it is not a sale by the developer to the society, it does not fall within ‘construction service.’
There are instances when the landowner i.e. the society retains part of the total available FSI and gives development rights of the remaining FSI only. In such a case, the possible view will be that developer has constructed the owner’s portion for and on behalf of the land owner. The construction cost of the owner’s portion becomes the consideration for the FSI passed on to the developer. With this, the developer assumes the role of a contractor rendering construction services to the land owner and can be treated as construction service provider.